Drug development company Targacept (NASDAQ:TRGT) has started two mid-stage clinical trials on a compound that could have applications in schizophrenia as well as attention deficit-hyperactivity disorder.

It’s the second round of phase 2 trials for the compound from Winston-Salem-based Targacept. Earlier this year, TC-5619 showed positive results in a phase 2 trial studying it to treat cognitive dysfunction in patients with schizophrenia. But the compound failed in a separate phase 2 trial studying it for ADHD. After the failure, drug partner AstraZeneca (NYSE:AZN) declined to exercise its option to license the compound. Targacept retained rights to the compound.

A spinout from tobacco company R.J. Reynolds, Targacept focuses on compounds that target neuronal nicotinic receptors to treat central nervous system disorders.

Targacept needs a win. The company last month disclosed that TC-5214, a compound being developed as an antidepression drug, failed in a phase 3 clinical trial. That compound had already been slated for four phase 3 studies and CEO Don deBethizy said at the time that the company was committed to completing those studies. AstraZeneca also retains the option to license this drug candidate under a 2009 collaboration agreement struck between the two companies.

Targacept could gain up to $540 million in milestone payments from AstraZeneca depending on the progress of TC-5214.

But Targacept is committed to developing TC-5619 on its own. The company in June netted more than $80 million through a stock offering to finance development of the compound.

Market research firm Decision Resources estimates that there are approximately 4.6 million people in the world’s seven major pharmaceutical markets who have schizophrenia; about 80 percent of them are cognitively impaired.

There is no approved drug in Europe or the United States to treat cognitive dysfunction in schizophrenia. Decision Resources estimates the ADHD market in the world’s seven major pharmaceutical markets could be 23.5 million adults and 23.8 million children and adolescents.

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